Fiat

Seeking help

Fiat's latest efforts to save itself

EARLY next month the new chairman of Fiat, Umberto Agnelli, and its even newer chief executive, Giuseppe Morchio, will fly to New York for a crucial meeting with Rick Wagoner, boss of General Motors (GM), and with John Devine, GM's chief financial officer. Their goal: to persuade the world's biggest carmaker to invest up to $1 billion more in Fiat, on top of an existing investment of $2.4 billion that secured it a 20% stake in Fiat Auto.

On paper, the Italian company does not have to ask. It has a “put option” to sell the remaining 80% to the Americans from January next year. But Fiat bosses privately acknowledge that forcing GM to buy the rest of Fiat Auto would simply result in acrimonious litigation, as GM would be certain to resist taking over a car company that lost euro1.3 billion ($1.2 billion) last year. So the put option has now been removed from the agenda: there is no longer any question of GM being landed with Fiat Auto. Instead Fiat bosses are grimly determined to work out their own salvation, returning the group to basics and trying to revive the fortunes of its core car division.

Yet they still want some help from their American chums. Messrs Agnelli and Morchio want GM bosses to stump up their 20% share of the roughly euro5 billion recapitalisation that Fiat intends. Full details of Fiat's financial needs and recovery plan will not be given to bankers until June.

The biggest obstacle is GM's own far-from-robust financial condition. Already it has had to take a big charge to write down its stake in Fiat from $2.4 billion to a mere $220m in recognition of the Italian firm's declining fortunes. And GM reckons it could take closer to euro7 billion to make Fiat roadworthy again.

But there is clearly some debate taking place inside GM. Mr Wagoner is keen on helping Fiat, not least because it is the most ambitious expression of his strategy of building a GM federation, through which small stakes in companies such as Fuji, Suzuki and Daewoo produce synergies in terms of shared product development. Mr Devine, on the other hand, is leery of such vague investments.

Mr Agnelli, who took the reins earlier this year after the death of his older brother Gianni and the resignation of his appointed successor, Paolo Fresco, now has a clear strategy. He is selling off various peripheral pieces of the sprawling Fiat empire to safeguard the core, which will consist of Fiat Auto, its lorry business (Fiat Iveco), and CNH, its farm- and construction-equipment arm.

For Fiat Auto, the plan is to blitz the market with a variety of new models. One of Fiat's big errors in the 1990s was to stop doing facelifts halfway through the conventional seven-year life of a model. The result was that decent market share for some models quickly faded. With a plethora of facelifts and new models scheduled for the coming year, Fiat seems to have learned something from errors past.

Most ambitiously, it plans a range of Alfa Romeo sports cars designed, with the help of GM, to get it back into North America. Fiat has revived the Alfa Romeo brand with smart new products such as the Alfa 156 sports saloon. It has in the works a selection of high-performance cars, all aimed at the lucrative American market, which its financial woes led it to abandon in the mid-1990s. With a little help from GM and its distribution networks, Alfa hopes to be back in America by 2007. But will that be enough to save Fiat?